Oil prices inched up from a three-month low on Monday as traders caught their breath after last week's 14 percent dive and considered a possible output reduction at Opec's upcoming meeting. Battered oil markets fell sharply last week on signs of healthier winter fuel inventories in the United States, the world's biggest consumer, extending the biggest retreat since prices embarked on an 18-month rally after the Iraq war.
US light, sweet crude was traded 16 cents higher at $42.70 a barrel in Asian trade, within sight of last on Friday's $42.05 trough, the weakest price since August 31. Prices have fallen 23 percent from their late-October $55.67 peak.
Last week alone the market dropped nearly $7 a barrel, notching up the steepest two-day fall since 1991 after data showing rising US heating oil supplies and healthy natural gas inventories assuaged fears of a winter shortfall.
While the supply cushion remains relatively low, worries of a supply squeeze were eased by mild weather in the US Northeast the biggest regional heating oil market in the world and heftier output from refiners finishing maintenance.
But the price decline has raised alarms for some members of the Organisation of the Petroleum Exporting Countries (Opec). "While Opec is undoubtedly relieved that prices have cooled, the speed of the past few days' correction should worry them," said Society Generale in a report.
"If unchecked, market momentum risks taking prices from correction to collapse." For the first time in over half a year, some Opec members are talking of a need to clamp down on quota-busting production, curbing the cartel's biggest output boom in 25 years.
"For our part as Kuwait, if this slide will continue as has happened in the last 48 hours, I think we have to cut all overproduction," Energy Minister Sheikh Ahmad al-Fad al-Sabbath said at the weekend. Iran had already proposed such a move.
The cartel meets in Cairo on Friday to plan first quarter production policy. A Reuters survey of October output for the group's 10 members with quotas put total production around 900,000 bpd over the November ceiling of 27 million bpd.
"We must bring our house in order first by strict adherence to quotas," an Opec source said on Sunday. The cartel may also be spurred into action by the weakened US dollar and deep discounts for its mostly sour, heavy crude, which have dealt a double blow to earnings this year.
The market's short-term counting structure in which prompt prices are lower than future months is another red flag for the group. January US crude is 22 cents less than February. "Opec detests counting because it is a price signal to rebuild physical stocks, undermining future prices, and typically acts to prevent it," SG said.
US crude oil inventories have been rising strongly since mid-September, putting them well above this time last year. The substantial inventory cushion has mitigated worries about ongoing production outages, including 205,000 barrels per day of Norwegian North Sea output, some 180,000 bpd still closed in the US Gulf and Canada's 160,000 bpd Terra Nova project. The list grew longer over the weekend, when Nigerian villagers seized three oil platforms in the south-eastern Rivers State.
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